August 18 2013

Volume 4

Exam Time

It’s true, there’s no time to catch a breath in a B School. Quizzes,

Presentations, Interviews and GD’s, finally we got done with everything, at

least we thought so. But alas it is not to be, the dreaded first semester exams

are here and studies are the focus of every junior’s agenda.

Amidst this atmosphere of tension and fear, FinGyan sessions came to the

rescue of the batch and helped them clear their doubts on FRA and ME.

Thanks to our team of Mukul, Ashish and Avishek for such a wonderful job.

On the global front, Finance Minister P Chidambaram’s efforts seemed in

vain as the Indian Markets tanked, the rupee breached the previous lows

and Indian Gold prices shot up. Do read on the Opinion section of “Stock

Markets” and In Focus section on “Import tax on Gold” to know more. Also

don’t miss the news section which gives a glimpse of the major happenings

this week.

The Term of the Week section includes ‘Hedging’. We hope that you find the content engaging and informative.

We hope you enjoy the various articles in this edition of FinXpress. We look forward to your comments, acknowledgements and your criticisms regarding our online magazine. We plan to invite articles for the different sections in FinXpress in a few weeks. Hopefully, you would write one for us!

All the best first years!!

Regards,

The Editorial Team

FinNiche Club

From The Editorial FinXpress

Volume 3

Aug 18,2013

FinXpress

Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.

FinNiche

August 2013 Page 1

CONTENTS

From The Editorial

In Focus: Import tax on

Gold

Opinion: Stock Markets-

What should we do?

Term of The Week

Market This Week

News

Fun Corner

Page 2

IN FOCUS

The yellow metal which is a highly valuable

and most sought after precious

metal for coinage, jewelry, and other arts is

now an aid to the policymakers to narrow a

gaping current account deficit. But

concerns about the slowing economy and

fears of more capital outflows keep up

pressure on the ailing rupee. On Tuesday,

13th August 2013, India hiked the import

duty on gold to a record 10 percent

(previously 8 percent), the third such

increase in eight months, while also raising

excise duty on the metal. The tax on silver

was also raised to 10%, from 6%.

A glimpse of tax hike on gold for the past

year and a half

Gold is India's biggest luxury import and a

key contributor to the all-time high in the

current account deficit. The move comes

as imports of gold revived to $2.9 billion in

July after a series of tax hikes and

constraints on supplies had initially

appeared to stem demand, confirming the

resilience of demand in the world's biggest

buyer of bullion.

On Tuesday, international spot gold was

quoting around $1,334 an ounce, while

silver was around $21.6 an ounce. In India,

spot gold was around 29,000 rupees

($472.50) for 10 grams and silver was

around 43,000 rupees a kilogram.

The tax increase came a day after Finance

Minister P. Chidambaram said he planned

a series of steps to bring the current-

account deficit down to 3.7% of gross

domestic product in the year ending March

31, 2014, from 4.8% last fiscal year.

Reducing silver and gold imports was

among these steps.

He also plans to curtail imports to 850

tones in the year ending March, compared

with 845 tones in 2012-13. Overseas

purchases surged 87% to 383 tones in the

four months through July from a year

earlier, according to the ministry of finance.

Imports of metals have been a drain on the

country's foreign-exchange reserves as

India-based buyers need to sell rupees for

dollars. Since early May, the rupee has

lost more than 10% against the U.S. dollar.

Last week, it hit a record low of 61.8 to the

dollar.

Prior to Tuesday's move, India had already

raised the import tax on gold four times in

the past year-and-a-half, in addition to

temporarily restricting gold imports by

banks and t r ad ing agenc ies .

C.P. Krishnan, a director at Geojit

Comtrade, said gold imports have largely

remained in the same range over the past

five years despite price increases. The

restrictions on banks and trading agencies

have created a temporary shortage of

FinNiche

IMPORT TAX ON GOLD —- By Divya Arora

August 2013

Page 3

IN FOCUS

of bullion in the local market, but analysts

and dealers expect supplies to normalize

when the festival season gets underway.

For one, local prices of gold and silver will

be roughly the same as a year ago even

after the tax increases because

international prices of both have declined.

Consumption in India, which imports

almost all the bullion it needs, accounted

for about 20% of global demand in 2012,

according to data from the gold council.

Gold is bought in India during festivals, for

marriages as part of the bridal trousseau

and gifted in the form of jewellery by

relatives. The festival season in India runs

from August to October, followed by the

wedding season from November to

December and from late March through

early May.

Gnanansekhar Thiagarajan, director of

consultancy Commtrendz Research, said

demand is likely to come roaring back from

September when the festival season in

India begins. The country's Hindu majority

considers this to be an auspicious time to

buy gold and silver.

The majority of India's gold and silver

demand comes from rural areas, where

people prefer to park their savings in

precious metals. A good harvest boosts

farmers' incomes. "This [tax increase]

won't dent consumption," Mr. Thiagarajan

said. "Once the summer crop harvest is

out in a couple of months, consumption of

gold and silver will increase, irrespective of

prices," he added.

Traders said the latest increase in taxes

would result in more smuggling of gold as

the demand for precious metals during

festivals and weddings won't come down.

Latest government estimates show that the

number of detected gold smuggling cases

rose to 879 in last financial year through

March from 119 two years earlier, when

the import tax on gold was at a low.

"We have already seen in past that we

have not been able to reduce imports

despite increasing duty. So by increasing

the duty we are inviting more and more

smugglers and antisocial elements into the

trade," said Haresh Soni, chairman of the

All India Gems and Jewellery Trade

Federation.

The outcome of this increase is that India's

jewelers are looking to shore up their gold

stash with a campaign to buy back gold

jewelry, after import taxes and increasing

restrictions squeezed supply of the

precious metal to the country. Jewelers,

who are scurrying to secure gold ahead of

an expected surge in demand, are paying

up to $8 a troy ounce over the international

spot price, double the premium a week

ago.

FinNiche

August 2013

Page 4

OPINION

The current stock markets is in a very

volatile state and every other day we get

the news of markets plunging and

recovering back. This volatility is useful for

a trader who can take positions in the

market and earn huge profits but an

investor finds it difficult to understand the

timing for the entry in the market. This

leads to a dilemma in the mind of the

investor and he is not able to utilise the

opportunity and enter the market when

they are cheap. Eventually when he finds

that he has lost an opportunity, he takes a

hasty decision and enters the market when

they are already on the higher side.

Markets whether they are in a bull phase

or in a bear phase won’t affect an investor

much if he is disciplined in his approach

and he follows simple investing rules of

entering the market when the markets are

in a bear phase and exiting the market

when the markets are on a high. This looks

simple on the top but difficult to implement.

Most investors panic when the markets

start crumbling and exits their positions at

prices which are very low and enters in the

market when the markets are climbing and

the prices of stocks are already on higher

side and the room for further upside is

limited.

Most economic and financial theory are

based on the rational thinking of investors,

but it has been proven that the irrational

behaviour and repeated errors prevail in

the stock markets which has led to the

birth of Behavioural Finance which

primarily deals with how emotions and

cognitive errors influence investors

decisions. In the 2008 sub-prime crisis we

have all seen how the emotions were hurt

by the crisis and which led to an extreme

pessimism in the markets creating an

opportunity for those who were bold

enough to utilise it.

Indian stock markets has always been

susceptible to FII flows. Whenever we see

substantial inflows from FII’s it gives an

impression we are entering in a bull phase

and the reverse causes a shiver in us. The

present situation in India seems to be little

of dubious kind because of the significant

depreciation of Indian Rupee due to

widening current account deficit and on the

other hand we have many investors who

firmly believe in the long growth story of

India. So what an investor should do in this

kind of situation- to enter the market or

FinNiche

Stock Markets: What should we do?

—- By Ashish Agarwal

August 2013

Page 5

OPINION

stay away from it. This question can be

answered if the investor is aware of its

time horizon, his/her risk taking abilities

and if he follows a disciplined approach.

One disciplined approach that can bear

fruits in this type of volatile Indian markets

is systematic investment wherein the

investor invests a fixed amount after each

interval which is generally 30 days. This

approach would help the investor to

average out the price he is paying for a

stock, in case the markets turn weak and

in the bull market he will have a good

return on the stock which already exists

with him. This strategy would turn out to be

very fruitful in the long run.

One more thing that also needs to be kept

in market is diversification. As Warren

Buffet has said “One should not put all

apples in one basket”, there lies the need

of diversification. Your exposure in the

market should not be limited to few stocks

but diversified across the market.

Diversification is needed not only among

stocks but also across sectors like

healthcare, IT, FMCG, Banking and

Financials. So the strategy is to first

diversify across sectors and among that

sector diversify in the stocks that are

available among those sectors.

Having said so this active strategy of

systematic planning and diversification is

not easy and comes at a cost of

rebalancing of portfolio at intervals and

keeping a track on the market. To

overcome this we have diversified mutual

funds which pool in investors’ money and

invest in the markets. In this strategy the

investor is not playing an active role and is

invested in the market and is also exposed

to market risk.

The Indian stock markets currently have

very low participation from the domestic

institutional investors as well as the retail

investors which is the prime reason for our

dependency on foreign flows. If we can

start saving and invest some portion of it in

a disciplined and systematic manner we

can achieve more than average return in

the long run. We all know the markets

today are not doing well in terms of return

but time will change. RBI is taking some

steps to control rupee depreciation and to

narrow current account deficit. We have

got a new RBI governor in the form of

Raghuram Rajan which we rate on very

high regards. The Fed has given hints of

withdrawing of its QE policy which is a

negative for developing countries like India

but the current valuations looks attractive

and we have all seen in the past when

India recovers it does so in a very

emphatic manner and after a consolidation

phase we expect the next bull market in

the making. “Happy Investing”

FinNiche

August 2013

Page 6

FINANCIAL KNOWLEDGE

What is Hedging?

The best way to understand hedging is to think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event. This doesn't prevent a negative event from happening, but if it does happen and you're properly hedged, the impact of the event is reduced. So, hedging occurs almost everywhere, and we see it every day. For example, if you buy house insurance, you are hedging yourself against fires, break-ins or other unforeseen disasters.

Portfolio managers, individual investors and corporations use hedging techniques to reduce their exposure to various risks. In financial markets, however, hedging becomes more complicated than simply paying an insurance company a fee every year. Hedging against investment risk means strategically using instruments in the market to offset the risk of any adverse price movements. In other words, investors hedge one investment by making another .

Technically, to hedge you would invest in two securities with negative correlations. Of course, nothing in this world is free, so you still have to pay for this type of insurance in one form or another

Although some of us may fantasize about a world where profit potentials are limitless but also risk free, hedging can't help us escape the hard reality of the risk-return trade-off. A reduction in risk will always mean a reduction in potential profits. So, hedging, for the most part, is a technique not by which you will make money but by which you can reduce potential loss. If the investment you are hedging against makes money, you will have typically reduced the profit that you could have made, and if the investment loses money, your hedge, if successful, will reduce that loss. Hedging techniques generally involve the use of complicated financial instruments known as derivatives, the two most common of which are options and futures.

Difference between Hedging and

Speculation

Put simply, while hedgers are risk averse, speculators are risk seekers. Speculators make bet or guesses on where they believe markets are heading. Thus they are vulnerable to either upside or downside of the market. Hedgers however, attempt to eliminate this very vulnerability by making offsetting trade. Hedging is done to reduce potential losses not to make ‘extra-ordinary’ profits. A trade is speculative if it adds to the already long or short position a company is carrying while the same trade is a hedge if by executing it the company’s total open long and short position comes down from current levels.

How much and what to hedge?

Assume two competitors A and B (both exporters). A completely hedges its current expected revenue of $1000 from Rupee downside by buying USD/INR futures (say 1 lot). For this they pay approx Rs 2000 as margin. B does not take any position. If Rupee goes up (i.e. USD goes down) by 1%, company A loses on rupee upside, on their hedge and on any potential return they could have generated on the margin money involved. B only loses on rupee upside. Thus, to remain competitive company A will have to compete on margin. Hence, 100% hedging may reduce competitive advantage!

Common myths about Hedging

•Hedging strategies are speculative

•Hedging strategies are complex and beyond reach

•Un-awareness/wrong estimate of Forex exposure

•Shareholder’s value will not increase due to hedging

•Only Large Multinational Corporations and Large Banks have a Purpose for Using Derivatives

FinNiche

Hedging —- By Vipul kumar Singh

August 2013

Page 7

FINANCIAL KNOWLEDGE FinNiche

Market This Week

In the week of Aug 12 -16, the SENSEX opened at 18789.34 and slumped 1.02% to

close at the 18598.18 mark. The Nifty fell by 1.03% to close at 5507.85. The Indian

rupee which fell to its lowest level of 62.01 this week has taken a massive toll on the

Indian equities -Sensex. Key benchmark indices slumped on Friday, 16 August 2013,

wiping out all the gains posted in the first three trading sessions of a truncated week.

The S&P BSE Sensex hit its lowest closing level in over seven weeks. The 50-unit

CNX Nifty hit its lowest level in more than 18 weeks. The market fell in one out of four

trading sessions.

Note-Trading Remained suspended on 15th August on account of Public Holiday

SENSEX Simple Moving Averages

BSE SENSEX

CNX Nifty

Thirty Days 19,502..60

Fifty Days 19,343.17

Hundred and Fifty Days 19,426.92

Two Hundred Days 19,346.64

August 2013

Page 8

FINANCIAL KNOWLEDGE FinNiche

Bank Rate 10.25%

Repo Rate 7.25%

Reverse Repo Rate 6.25%

Cash Reserve Ratio 4%

Statutory Liquidity Ratio 23%

INR / 1 USD 61.73

INR / 1 Euro 82.25

INR / 100 Jap. YEN 63.25

INR / 1 Pound Sterling 96.43

Commodity Unit Rs / Unit % Change

Gold 10 grams 30230.00 3.58%

Silver 1 Kg 49458.00 6.27%

Crude Oil 1 bbl 6657.00 1.90%

Base Rate 9.70%-10.25%

Savings Deposit Rate 4.0%

Term Deposit Rate 7.5%-9.0%

Nifty Simple Moving Averages

Commodities

Lending / Deposit Rates

Thirty Days 5,822.18

Fifty Days 5,802.03

Hundred And Fifty Days 5,864.53

Two Hundred Days 5,851.04

Key Policy Rates and Reserve Ratios

Exchange Rates

August 2013

Page 9

FINANCIAL KNOWLEDGE

It was Black Friday for markets

It was a black Friday for the Indian

economy, which experienced a bloodbath

on the bourses, a free fall of the rupee to a

record low and a surge in gold prices with

nervous investors rushing for ‘safe haven’

cover in a highly volatile and uncertain

environment.

BSE’s SENSEX plunged by 769.41

points – its lowest in 4 years whereas the

Rupee momentarily breached 62 mark

touching 62.03 – an all time low. At this

uncertain time, investors turned to gold

and the price of yellow metal surged by Rs

1310 most in last two years to reach Rs

31000 per 10 grams.

WPI inflation rises to 5-month high of

5.79% in July

Driven by vegetables, wholesale price

index-based inflation again moved out of

the comfort zone of the Reserve Bank of

India to stand at 5.79 per cent in July

against 4.86 per cent in the previous

month. The rate was 7.52 per cent in July

2012. Prices in fuel and manufactured

sector did see a marginal rise but was

very low when compared to vegetables

which soared by 46.59 percent in July

against 16.42 percent in June.

Mahindra and Mahindra Q1 net rises

16.9% to Rs 909.7 crore

Powered by tractor sales, Mahindra and

Mahindra, India's largest utility vehicle and

tractor maker on Tuesday reported a

16.9% increase in net profit for the June

ended quarter, that beat analyst

estimates. The net profit for Q1 ending

June of FY14 stood at Rs 909.7 crore

versus Rs 778.5 crore in Q1 of last year.

Moody’s downgrades 3 banks

Moody's Investors Service has

downgraded the bank financial strength

ratings (BFSRs) and baseline credit

assessments (BCAs) of three Indian

public sector banks i.e. Canara Bank,

Union Bank of India and Punjab National

Bank. At the same time, Moody's has

downgraded by one notch the local

currency deposit ratings and has also

downgraded the senior unsecured debt

ratings or issuer ratings of the same three

banks.

Japan's debt crosses 1000 trillion Yen

Japan's national debt has exceeded

1,000 trillion yen and has topped

economies of Germany, France and the

UK combined. Japan is now looking at

doubling taxes after Moody's investor

service warned that worsening of finances

would erode the confidence in government

bonds.

With public debt more than 200

percent of GDP, the Japanese have long

measured their red ink in hundreds of

trillions of yen. The country’s outstanding

public debt, including borrowings,

increased 1.7percent in the second quarter

of 2013

HSBC India profit dips, customer

accounts sees over $500-mn plunge

UK-based global banking giant HSBC has

seen its first-half profit from India business

falling to USD 414 million in 2013, amid a

decline of over USD 500 million in

customer accounts since the beginning of

this year. According to the bank's interim

financial report, its customer accounts

balance in India fell to USD 9.85 billion as

on June 30, from USD 10.41 billion at the

beginning of 2013.

While the bank did not specify any

reason for the decline in customer

accounts, it said that the profits from India

fell to USD 414 million in the first half of

2013, from USD 515 million in the same

period last year.

FinNiche

NEWS

August 2013

Page 10

FINANCIAL KNOWLEDGE

PSU banks' NPAs at Rs 1.76 lakh cr in

June quarter

Gross non-performing assets (NPA) of

public sector banks rose to Rs 1.76 lakh

crore at the end of June quarter from Rs

1.55 lakh crore at March 31, 2013.

RBI has issued detailed instructions

to banks to address the issues of NPA

management to improve the health of the

financial sector, reduce the NPAs, improve

asset quality of banks and prevent

slippages.

Accenture to acquire Germany's Prion

Group

Global technology and consultancy

giant Accenture PLC will acquire Germany

based Prion Group, a move that will help

enhance its product lifecycle management

(PLM) services. No financial details were

disclosed.

Combining Prion Group with

Accenture's management consulting,

technology and outsourcing capabilities

will create a market-leading global PLM

offering for a range of industries, including

industrial equipment, automotive,

consumer goods, and aerospace and

defense, the statement said.

Bharti Airtel ties up with IRCTC for

railway bookings

Bharti Airtel has tied up with Indian

Railways Catering and Tourism

Corporation (IRCTC) to offer railway

bookings through Airtel Money in Upper

North comprising Punjab, Haryana,

Himachal Pradesh and Jammu & Kashmir.

IRCTC mobile bookings through Airtel

Money service works across all mobile

devices, does not involve any data or SMS

charges. It uses a simple USSD

(Unstructured Supplementary Service

Data) technology that prompts users with

interactive and guided menu options

towards booking tickets.

ONGC June quarter net profit down by

34%

State-owned Oil and Natural Gas

Corporation (ONGC) reported a 34 percent

drop in the June quarter net profit mainly

due to impact of subsidy it pays so that

diesel and cooking fuel can be sold at

subsidized rates.

Net profit in April-June fell 33.92 per

cent to Rs 4,015.98 crore from Rs

6,077.70 crore in the same period a year

ago. Turnover was marginally lower at Rs

19,308.93 crore in first quarter as

compared to Rs 20,177.78 crore a year

ago.

FinNiche

NEWS

August 2013

FinNiche

Fun Corner

Last Week’s Answers

1.Bear market

2.Buyback

3.Balloon payment

4.Bull market

5.Adjustable rate mortgage

CARTOONS

FUN CORNER

Page 11

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Volume 4 Publisher : V.V.Raviteja

August 2013

Fin Quiz 1. Indication of future operating cash flow is ____

2. _______gives buyer the right but not obligation to sell a

given quantity of asset at a given price on or before its

future date

3.Longterm debt/(Long term debt + shareholders' equity)

is _____

4.Contract in which 1 party sells a specific security to an-

other party with an agreement to buy back on a spe-

cific future date at a specified price is ________

5.Total liabilities/Total assets is____________

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